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It would be hard to overstate the importance of the Public Investment Corporation (PIC) to the South African economy and our society more broadly. Its website notes that it is one of the largest investors in SA equities, with investments contributing towards about 12.5% of the market capitalisation of the JSE. Most of the PIC’s assets under management are entrusted to it by the Government Employees Pension Fund (GEPF). It also manages money for 23 other public bodies that operate pension, provident, social security and guardian funds, including the Unemployment Insurance Fund.

The PIC is the nation’s enormous piggybank, investing the money public servants put away for their retirement so that they can receive pensions and benefits after a lifetime of work. It’s so big and such an important player in the financial market that its behaviour and ethics have the inevitable effect of shaping the whole investment ecosystem. If we want to understand why the South African investment industry has failed to play a transformative role in our country, we have much to learn from the PIC’s journey over the past 15 years.

In the early 2000s it seemed as if the PIC was going to take up the challenge of driving change in the private sector. It became a signatory to the UN-backed principles for responsible investment, adopted the code for responsible investing in SA and participated in the UN Global Compact, all of which are aimed at making business more accountable for its impacts on people and the environment. Had the PIC delivered on that early promise it is possible that our society could look quite different from the way it does today.

More than 50% of South Africans, most of them black, live in poverty. After a decline in poverty levels from 2006-2011, the situation has since worsened, and by 2017 more than 55% were poor, according to StatsSA. We can’t know definitively whether different behaviour by the PIC would have had an effect on poverty levels, but a growing body of international research shows that responsible investment leads to equal or better returns, as well as better social and environmental outcomes. So if a player of the size and importance of the PIC had been more focused on driving better corporate behaviour, and less focused on using its assets as a slush fund for rewarding cronies, we may have seen the emergence of a private sector much more concerned with promoting inclusive growth to reduce poverty.

The other major issue confronting our society, whether our government admits it or not, is climate change. Had the PIC leveraged its powers to make this a priority, SA could now be a global leader in realising the Paris agreement’s goal of a just transition to a resilient low-carbon economy that drives job creation, reduces inequality and builds social stability.

What does the PIC experience teach us? Firstly, and most obviously, it teaches us that change is really hard, and almost impossible without inspired leadership. The idea of “path dependence” explains how decision-making is often shaped by previous decisions and events, even when circumstances are different. The PIC is the perfect example of an institution that has proved to be entirely path dependent: despite saying all the right things, it has done almost none of them, performed badly, and ended up with a severely compromised reputation.

Change management requires sustained, tenacious, ethical leadership and the evidence shows that this has not been in place at the PIC. Two of the three CEOs of the PIC since 2003 have had their integrity called into question: Brian Molefe, CEO from 2003 to 2010, and Dan Matjila, CEO from 2014 until recently.

Secondly, the PIC experience teaches us that implementing responsible investment requires strong, clear policies and guidance on how to approach all three elements of environmental, social and governance (ESG) factors holistically, and that focusing on the governance piece alone is not enough. While a review of the proxy voting reports on the PIC website shows that it has voted against some governance-related company resolutions, the PIC has never demonstrated any significant leadership on a single social or environmental issue. This is appalling, especially in light of its many claims to be a leader in responsible investment.

Thirdly, the PIC experience teaches us the importance of transparency. It is often noted that the best disinfectant is sunlight, and the PIC has for many years been a very shady place. Too many of its engagements have been undertaken behind closed doors and agreements, policies and positions have not been disclosed. We need the PIC to communicate better, to be transparent about the agreements it reaches with its big investees, and to make public its policies and positions on big issues such as climate change and inequality. Its opacity also deprives it of the opportunity to demonstrate leadership to the rest of the financial sector.

The beating heart of responsible investment is the asset owners and their asset managers, who have agreed on what is important and who take action on those issues. There are therefore also huge questions about the GEPF’s role in adequately mandating the PIC, and in carrying out its fiduciary duty to oversee the investment of its pension fund assets. But ultimately, when considering the PIC, its biggest problem has been its failure to act on what it said it knew was important. The overall impression from the Mpati commission of inquiry into the PIC is that it has been doing pretty much everything other than managing its assets diligently and conscientiously, in accordance with the trust placed in it by millions of pensioners, public servants and taxpayers.

The only time we truly fail is when we don’t learn from what has happened before, and the findings of the Mpati commission will present SA with an important teachable moment. The integrity and leadership abilities of the people who are chosen to drag the PIC out of its mire will be critical if the damage is to be reversed. Unless the PIC purposefully and honestly takes on the challenge of becoming the leader in responsible investment it has so long claimed to be, it will be far harder for business in SA to achieve its potential to play a transformative role in our society.